With the IMF and Germany again at each other's throats over the neverending drama that is Greece, German Finance Minister Wolfgang Schaeuble repeated the same line he has used since the third Greek bailout from the summer of 2015, and in response to the IMF's demands for a reduction in Greek debt and fiscal surplus, the German ruled out a debt cut for Athens "as a violation of European rules", adding that "the country would have to leave the euro area to do so."
“We can’t undertake a debt haircut for a member of the European single currency, it’s ruled out by the Lisbon Treaty,” Schaeuble told German broadcaster ARD. “For that, Greece would have to exit the currency area.”
The German minister added that Greece will be able to complete the current bailout program if the country meets the conditions set by creditors, who must keep up the pressure on the government in Athens. Greece’s main problem isn’t debt, but rather competitiveness, he said, which of course would mean thatthe Greek currency would need to devalue... if only said currency wasn't the euro, from whose clutches it can only escape if Greek citizens are willing to lose all their savings as the fireworks of 2015 showed.
“The pressure on Greece to undertake reforms must be maintained so that it becomes competitive, otherwise they can’t remain in the currency area,” Schaeuble told the German people. And since external competitiveness, i.e. devaluation, is impossible, Greece will have to achieve it by other means, namely even lower wages.
And speaking of the euro, Schauble reiterated his statement from the weekend, in which he agreed with Trump and again said that the "euro exchange rate is too low for Germany."
So while Germany and Trump may loathe each other, and disagree on virtually everything else, at least they both can agree that Mario Draghi is a major source of their trade-linked "problems."
But back to Greece, whose travails we have been following for the past week, and which as the WSJ reported overnight, may well be forced comply with Schauble's demand to "exit the currency" after the IMF said that Greece "once again risks a eurozone exit amid stalled bailout talks, sending the clearest signal yet the emergency lender isn’t likely to soon rejoin Europe’s failed efforts to fix the debt-weary nation."
Fund officials said Athens and its European creditors must agree to much deeper economic overhauls and substantial debt relief before the fund considers contributing another cent.
Two fund documents made public Tuesday reveal deep-seated skepticism that Europe’s latest financing program can fix the broken economy. Both the IMF’s annual review of Greece’s economy and a scathing assessment of its own second bailout to the deeply ailing economy underscore a third fund package is unlikely soon.
Which, arguably, means that all those "fake news" reports mocking the IMF's forecasts and tactics on how to "fix" Greece, of which we posted countless numbers, were actually right on the money, or lack thereof in Greece's case. Ironically, even the IMF said as much:
In a separate document reviewing the fund’s handling of the second bailout, IMF staff detailed numerous lessons they said should guide future lending to Greece and other countries. Two top priorities are limiting the scale of the overhauls needed so as to make sure they are politically feasible, and securing stronger commitments from other creditors before joining in bailouts.
“Upfront commitments of debt relief which delivers debt sustainability based on a realistic target for the medium-term primary fiscal surplus are a prerequisite for program success in the circumstances faced by Greece,” IMF economists said in the second report. “The program’s chances of success could have been greater if the degree of ambition in its targets and the optimism in the macro framework had been tempered,” they said.
Unfortunately - due to the hubris of IMF and European economists - they weren't, and the result is a Greek outcome that is now far worse than the US Great Depression.
But at least Greece still has the euro, although if Schauble is to be believed, not for much longer as the combination of a joint currency and an "explosive" debt load (per the IMF) simply can not continue to coexist.
In short: it is shaping up as yet another "summer of Grexit", especially with just over €6 billion in Greek debt maturities set to hit in July.
The only difference from 2015 - when this whole scenario was played out most recently - is that this time nobody will care.